What is a pre-construction and new construction condo

A Pre-Construction or New Construction Condo refers to purchasing a condominium before or during its construction phase. Buyers base their decision on the building’s planned specifications, renderings, and permitted plans. Depending on the construction progress, some may buy partially completed units.

The development of such properties involves several stages, starting with the planning and budgeting phase, followed by architectural planning and securing building permits. Construction begins once permits are approved and can last up to 4 years for a condo building. Finally, the close-out stage marks the completion of the building, and residents can move into their new units as sales contracts are finalized.

Reasons to Buy Pre-Construction Condo in Miami:

1. Attractive Price: Developers often offer early-bird pricing and incentives during the pre-construction phase, allowing buyers to secure their condo at a lower price and potentially benefit from rising real estate values without the immediate maintenance responsibilities.
2. Exclusivity: Being the first owner of a unit provides a sense of pride and exclusivity, knowing that no one has lived in the space before.
3. Customization: Pre-construction offers the unique opportunity to choose from a variety of floor plans and select the desired floor level, providing a personalized touch that may not be available in completed condos.

Miami Pre-Construction Phases: Exploring the Benefits

As you begin your search for pre-construction and new construction properties in Miami, you’ll encounter condo projects at various development stages, each with its unique advantages. Understanding these stages will help you determine which one aligns best with your preferences and needs, as we explore the factors below.

Pre-Construction Buying Phase 1: Reservation

During the early pre-construction phase, you have the opportunity to buy into the project when it’s still in the middle of the planning stages. The developer provides all floor plans and initial building designs, giving you a clear idea of your future unit’s appearance, including selected finishes and appliances. The building plans are undergoing approval with the city, and the condominium registration is being processed with the State of Florida.

As an incentive for early buyers, developers offer deep discounts to create excitement and secure reservation sales, showing lenders the project’s potential. In this phase, you’ll sign a non-binding Reservation Agreement and typically pay a 5-10% deposit to secure your preferred unit.

Pros:

• Low deposit requirement
• Wider selection of units to choose from
• Lowest, “early-bird” prices
• No penalty to cancel at any time

Cons:

• Some details about the building may change as it progresses
• There could be some unknowns regarding the project
• There is a slight possibility that the project may not be built, although your deposit will be returned if this happens
• The construction process may take longer than expected

In this early pre-construction phase, you have a unique chance to claim your desired unit at an advantageous price while being part of the project’s initial momentum. However, it’s essential to be aware of potential uncertainties as the development progresses.

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Pre-Construction Buying Phase 2: Contract

At this stage, the developer has obtained approval for its plans from the city and received official approval for its Declaration of Condominium with the State of Florida. This typically occurs 3-6 months after the initial Reservation phase. Now, the developer is ready to officially enter into contracts for its pre-construction units.

During this phase, you will receive a developer contract along with the full condominium documents. At this point, the developer typically requires a total of 20% payment (if you previously paid a 10% reservation fee, you will now pay the remaining 10% balance).

Pre-Construction Buying Phase 3: Construction

Construction kicks off with the exciting “groundbreaking” event, where the developer lays the foundation of the project. At this point, a 10% deposit is typically requested from buyers. As construction progresses and reaches significant milestones like reaching certain floors or “topping off” (when the building’s top concrete is poured), additional deposits are requested until a 50% total deposit is reached.

The construction timeline from groundbreaking to topping off can take 12-18 months, depending on the building’s size. However, “topping off” doesn’t mark completion; it signifies that the exterior shell is done, and attention shifts to finishing interior spaces. From “topping off” to interior completion, another 6 months or more may be needed.

Finally, just before closings commence, the building typically acquires a “TCO,” or Temporary Certificate of Occupancy, as per local government regulations. This marks the last stage of construction before residents can move in.

Pre-Construction Buying Phase 4: Completion/Closing:

After a building reaches its “topping off” phase and interior work is complete, along with the acquisition of a Temporary Certificate of Occupancy (TCO), the construction enters its final stages. This involves adding final finishes, landscaping, and obtaining the last permitting approvals. It’s during this period that “Close-Outs” or “Closings” are initiated.

“Closing” is the day when the selling contracts are fully executed, and the buyer exchanges the total payment for the unit with the seller/developer. This officializes the buyer as the property’s rightful owner. Once the developer receives the Final Certificate of Occupancy (CO) from the County, granting permission for residency, they will send letters requesting closing within 30 days. Once you close on your unit, you can schedule your move-in date and settle into your new home.

Pre-Construction Buying Phase 5: New Construction Re-sales

Once pre-construction buyers start closing on their units, some may decide to resell them. This can lead to two scenarios:

1. The new buyers might get a discount on the market price from the original buyer, offering a great deal.
2. The units that have already been completed with final finishes and interior design by the first owner become a convenient option for potential buyers seeking a move-in-ready home.

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Negotiating the Deal for Pre-construction

Buying a property during its construction process involves more steps than purchasing a completed product. As developers seek to sell as many units as possible before finishing construction, there are ample opportunities to negotiate the best deals if you understand how.

Here are some essential factors to consider when negotiating for the best deal on a pre-construction condo property.

1. Timing

Developers tend to be most flexible in negotiations during these specific thresholds:
When the market is soft: Consult your real estate broker for the latest market statistics to identify favorable conditions.
When they are close to 50% sales: This stage signals a crucial milestone in the project’s progress.
Right after securing their construction loan: Developers may be more open to negotiations once financing is secured.
When they have their last remaining units: At this point, developers are often eager to sell and move on to new projects.

2. Parking.

Parking can be a significant concern in big cities, where city governments often impose parking spot requirements per unit. However, with an increasing focus on public transportation, these regulations are evolving. If parking is essential for you and your family, it’s crucial to pay attention and inquire about it during the buying process. Some deals may even include an extra parking space at little or no extra cost.

3. Developer Fees:

Developer fees are inherent charges, akin to commissions, intended to offset the project’s overall development costs. Typically calculated as a percentage of the selling price, these fees range from 1.5% to 2.7%. Nevertheless, skilled negotiation can potentially lower or even eliminate these fees altogether.

4. Negotiating Interior Finishes:

When purchasing a unit during the construction process, you may have the opportunity to negotiate certain interior finishes and fixtures. Upgrades like flooring, carpet credits, and furniture packages can be potential negotiation points, especially if you time your deal right.

5. Choose the Right Real Estate Agent:

Selecting a skilled real estate agent is crucial, as some agents prioritize immediate sales over building long-term relationships. Find a professional who will negotiate on your behalf, paying attention to the finest details to put you in the best position. Negotiating with developers can be challenging and time-consuming, requiring persistence and knowing the right channels to get the deal done effectively.

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How to Finance a Pre-Construction Property

Pre-construction properties typically involve cash contracts, which means buyers need to pay upfront. However, this doesn’t necessarily exclude the possibility of obtaining financing for your pre-construction property. While getting a loan is feasible, it’s essential to be aware that if you can’t secure financing and close on the condo unit, you might not be eligible for a deposit refund. Nonetheless, various lenders specialize in pre-construction financing for each project.

An experienced real estate agent can guide you in finding the best lenders to work with if you’re considering financing your pre-construction purchase. Their expertise will help you navigate the process and explore suitable financing options for your investment.

Closing Costs for Pre-Construction Properties

Closing on a pre-construction property can bring surprises when you receive your settlement statement. Here are the key aspects to be mindful of during your pre-construction condo closing:

1. Developer Fee: Usually ranging from 1.5% to 2.7%, this fee may be negotiable in some cases.
2. Title Insurance: Check if this cost is included in the developer fee or specified separately.
3. Association Fees: Expect to pay one month in advance for the Condo Board Association fee or HOA fee (Homeowners Association).
4. Operating Account or Reserves: You’ll likely be required to pay two months’ worth of HOA fees to establish the initial operating account and potentially replacement reserves for future major building expenses.
5. Lender Closing Fees: If you’re financing the purchase, your lender will have various closing fees, such as origination fees, lender title insurance, appraisal fee, and others.

As you navigate the closing process, being aware of these factors will help you avoid surprises and ensure a smooth transaction. For more insights on HOA fees in Miami and their comparison to other regions, consider reading additional resources.

Tips on How to Cancel or Get Out of a Pre-Construction Contract

Seek Legal Assistance for Canceling Pre-Construction Contract

If you find yourself needing to cancel your pre-construction contract, it’s advisable to engage a lawyer for expert guidance. Your lawyer will thoroughly review the following aspects to determine possible avenues for cancellation:

1. Condo Docs: Your lawyer will scrutinize the condo documents, particularly any amendments made since your initial review.
2. Construction Timelines: If the developer fails to fulfill the condo construction timelines as stated in the contract, your lawyer will assess this discrepancy.
3. Defects/Variations: Any material defects or significant differences between what you were promised and what was actually delivered will be closely examined to assess your grounds for cancellation.

With a competent lawyer by your side, you can better navigate the complexities of canceling a pre-construction contract and ensure your rights are protected throughout the process.

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For more Frequently asked questions about Pre-Construction, Read our Q and A blog post.